How To: Create a Simple Budget Plan to Kick Start your Investing Journey

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Budgets not only sound boring, budgets are boring. The idea of populating a budget spreadsheet or using budgeting apps to input the 5CHF fruit smoothie you bought at Migros probably doesn’t fill you with too much excitement.

And that’s normal.

But what if I told you by following my steps of setting out a budget plan, optimizing your expenses and then investing what you save, you’ll potentially have over 250K in your nest egg after 10years.

Sound more interesting?

Before we start you’ll be relieved to hear this article won’t be recommending complex budget spreadsheets or telling you to speak with a financial advisor.

But taking the first steps with a budget is critical to ensure you avoid some of the common investing pitfalls.

By the end of this article you will have a strategy to get an overview of your spending, understand which budgeting software to use, and you’ll be ready to move onto step two on optimizing your spending to grow a nest egg for the future.

I’d recommend starting by reading the first steps below, however if you’d like to jump straight to the areas to optimize your budget and grow your 250K, go for it.

Let’s get stuck in.

Start with a post-it note.

Start by simply jotting down some of your big-ticket items you have going out each month. Focus on your immediate obligations first such as your housing, utilities and insurances.

What items are included in a personal budget?

More than you probably realise. You’ll quickly come up with 4-5 items without too much effort, such as:

  • Rent/mortgage
  • Insurances
  • Commuting
  • Food
  • Water & electric

A simple post-it note is enough for now. This brainstorming approach should take no more than five minutes – and is a good way to quickly get your brain in gear to understand your expenses, and more importantly what you think are your expenses, whilst gathering momentum for the next steps with a budget plan.

Stop after five minutes and save the post-it note for later.

Now dig into your statements.

The post-it note exercise was your gentle primer, but now things are going to get a little more detailed as we get into the nitty gritty.

We are now going beyond the easy immediate obligations of keeping a roof over your head and the lights on, and finding out your true expenses.

Pull your bank statements, credit card bills, insurances, recurring payments (e.g. Swisscom, Netfilx and Spotify), Migros food shopping, you get the idea, to get a feel for your real monthly outgoings.

The more rigorous you can be here the better!

The goal is to reach a monthly average of your outgoings on which you can then forecast your future expenses. This also means items which are not necessarily billed monthly, but on a yearly basis such as car insurance and tax bills.

Meaning, if your car insurance premium billed annually for 800 CHF, that’s 67 CHF/mth you need in your monthly budget to cover it come renewal time. If your tax bill in October is 10K CHF, that’s 833 CHF/mth you need marked in your monthly expenses.

By setting aside money in your budget for such items you’ll reduce the nasty surprises when the bill arrives in the post, and comfortably pay the balance in full due to having allocated the funds over the previous months.

Without a budget you’ll keep reacting to bills like this.

Work through this process for every item and payment you see coming up on your bank and credit card statements over the last year. This might take as little as a few hours, or as long as a week as you dig through paperwork and get every random little expense listed.

Yeah, it’s painful.

But you only need do it once, and once you finish I guarantee a feeling of satisfaction as the realisation hits you of knowing exactly where every Franc of your money is going each month.

You might be wondering how to create a budget spreadsheet, however in it’s simplest form you can record this information in a basic two column spreadsheet, or in one of the many budgeting apps  (see below for more on the best budgeting app we’ve used)  available.

The important thing for now isn’t the app or spreadsheet, but just to keep momentum and have everything listed in as much detail as you can in order to paint the full picture.

“We spend how much on beer & milk at Migrolino every month!?”

If you do nothing else and stop reading InvestingHero completely, you’ll feel the benefits for months to come. The awareness of knowing where your money goes each month is simply liberating.

Notice we haven’t done anything to improve or make adjustments, this will come next. For now, we’ve just completed an audit to get an awareness on the state of your affairs.

Give yourself a pat on the back for making it this far and completing that process – many never do.

Starting to get organized.

Printing out insurance premium statements is all well and good and feels very grown up, but what about the stuff that doesn’t make you puke every time you see the bill? Stuff that’s fun which you enjoy spending money on?

Like holidays.

Or new trainers.

Or good red wine.

Or whatever you randomly want to buy.

Same process. Just add a new row ‘holiday next egg’, ‘trainer collection’ or ‘random shit’, whatever you want to call it, in your budget spreadsheet.

Maybe you have 2 or 3 such rows, and set a CHF amount to it each month, based on the average you spent on it last year. 60 CHF/mth on trainers for example. Simple as that.

It’s about being realistic with your variable as much as your fixed monthly expenses.

Think about setting some goals and targets.

Setting saving goals and targets is another aspect to include in your monthly budget. If you are saving for a holiday for example, you can allocate a certain amount each month to that to avoid overspending and missing your target.

By the time your are due to pay for your holiday, you’ll have the amount allocated in your bank account and can pay it one go – free from guilt and worry that you can afford it.

Setting such goals is a great stress reliever if you previously worried about larger bills landing in your mailbox demanding payment. By planning things out on a monthly basis you’ll be cash rich to settle them come the due date.

So ask yourself, what holidays, social events or purchases are on your radar for this year?

Start to brainstorm these too and ballpark the costs in order to improve your budget accuracy.

You still get to spend on what you love.

Budgeting isn’t about cutting out your trainer collection and living off M-Budget toilet paper for the rest of your life. Unless you want to that is.

In general you won’t be spending anything less per month, you’ll just be spending it more on where it should go first.

Budgeting is also about gaining an awareness to make the right choices in the first place, and being able to ask the question:

Am I happy with spending my hard-earned money on that every month?

Keep spending on the things that spark joy and bring you happiness. Aggressively reduce and aim to eliminate everything else that doesn’t.

You can read part two in this article series for some examples on what items you can consider reducing.

Upgrade the spreadsheet to a good budgeting app.

If you are just starting out with understanding your budget its often easy to get drawn into relying on a shiny new tool to do the work for you.

There is no silver bullet, and the ‘tool’ won’t replace the work you need to put in, often a simple budget spreadsheet is enough for the first month of your journey.

That said, budgeting apps can offer a lot of benefit if you take the time to learn the platform and really commit to using the tool on a regular basis.

One of our favourites is YNAB, a deeper review of which is coming to InvestingHero soon, but it’s a worthy upgrade when formalizing your budget process.

Screenshot of YNAB desktop

In a similar way to what we’ve outlined earlier in this article, you can setup all your expenses, recurring payments, goals and savings targets and see in detail where every single CHF goes each month.

But unlike others, YNAB goes beyond just simply logging expenses like many traditional budgeting apps, by basing the use of the app on their ‘four simple rules’ to get the most out of it.

Rule 1 – ‘You give every dollar a job’.
As soon as you get paid, you’ll allocate where and how that money will be spent for the month, and you’ll quickly create a framework to get your money working for you. This is a great way to visually see how much you could in theory start to invest in the stock market, and after you’ve optimized your budget, increase that allocation even further.

Rule 2 – ‘Embrace your true expenses’
Receiving big bills out of the blue isn’t a nice experience, and much like we’ve discussed above – being honest and planning for these larger expenses (e.g. see above re. your tax bill) is the best way to prepare for when they land. As you’ve allocated the amount through your bite sized monthly budget, you simply pay it off in full when the expense arrives.

Rule 3 – ‘Roll with the punches’
Your budget won’t be perfect the first time round, and you’ll no doubt receive a lot of unforeseen costs and expenses in the months ahead. Maybe you go crazy on a night out, or need dental work that wasn’t in your month plan. That’s all fine. YNAB makes a point of not getting hung up on ‘overspending categories’ as life gets in the way and your circumstances change, and your budget is no different. Simply react by reallocating budget from elsewhere from your plan and move on, guilt free.

Rule 4 – ‘Age your money’
I’m not completely convinced with the value of the money aging rule from YNAB, but the idea is that as you have a greater awareness of your spending you’ll be better prepared for the future and be able to hold onto you money for longer. You are no longer living paycheck to paycheck waiting for your bank account to be out of the overdraft, and I get that.

‘You’ll be able to cover May’s rent with dollars from April’

In principle this is sound, but once you have a solid base and reduced your debt,  we are more focused on freeing up these spare dollars to gain an awareness on how much we can actively invest comfortably each month – and not simply holding onto an increasingly larger cash pile.

That said, the closing messages from YNAB are spot on:

‘Be purposeful in your spending and consistently spend less than you earn.’

YNAB has a wealth of supporting material, guides and demos to get started. The app is even free for a limited time, and then charges a competitive annual subscription to keep the service.

YNAB also has mobile app versions enabling you to record expenses and updates on the go – which is an extremely practical method to avoid hanging onto receipts and reduces your budget the administration to a minimum.

Closing thoughts.

If you’ve managed to complete the process above then congratulations – many will never go to the effort and getting into the details. You’ve taken an important first step in your investing journey.

The next steps get a lot more interesting, from optimizing your budget to generate over 250K CHF in the long term, to identifying some of the common investing pitfalls for beginners. With a solid budget foundation now in place take a look at the next blog posts in the series.

What did you think of the budget plan process outlined here? What did you find most difficult when you created your first budget?

Let us know in the comments below.